23-05-2025
Two mortgage lenders increase prices as Barclays makes gloomy interest rate forecast
Barclays has revised its interest rate forecasts following Wednesday's disappointing inflation figures, while two other lenders have increased their mortgage rates.
The bank says it no longer expects the Bank of England to cut rates in June and now sees the base rate reaching 3.5 per cent in February 2026.
It had previously forecast that this would happen by the end of this year.
Inflation jumped more than economists expected to 3.5 per cent in April driven by a huge hike in household bills, Office for National Statistics data this week revealed.
Jack Meaning, chief UK economist at Barclays said the inflation figure 'surprised us to the upside' and that its forecast was now more in line with the Bank of England's own expectations.
'We... do not think that a sufficient undershoot of inflation will be realised to motivate a cut in June,' he added.
Meaning also noted that the tone from the Bank's policymakers since May's decision had been decidedly cautious.
Speaking at Barclays' offices in London this week, Huw Pill, chief economist at the Bank of England reportedly made clear that his preferred pace of lowering interest rates would be slower than once every three months.
Despite Pill's preference, Barclays predicts the Bank of England will continue to cut interest rates once every three months going forward.
However, its analysts also believe that if the economy struggles more than expected this could result in faster cuts.
Meaning added: 'We expect a quarterly pace to remain the baseline beyond June, leading to 25bps cuts in August and November this year.
'However, were we to see a more meaningful deceleration of economic activity or inflation relative to our baseline forecast – either because the economy is weaker than we currently assess or because the stimulus we expect over the remainder of this year is not delivered – then cutting to neutral would not be sufficient, in our view, raising the risk of further cuts being required.'
Mortgage rates increased by two lenders
The changing forecast is resulting in some mortgage lenders now increasing rates, following weeks of steady cuts.
Both Santander and Nationwide Building Society have today announced mortgage rate increases.
Santander says it is increasing fixed rates by up to 0.1 percentage points from Tuesday next week.
Meanwhile, Nationwide has today increased its mortgage rates by up to 0.25 percentage points.
The announcements have likely been made in response to rising swap rates.
A swap is an agreement in which two banks agree to exchange a stream of future fixed interest payments for another stream of variable ones, based on a set price.
These swap rates are influenced by long-term market projections for the Bank of England base rate, as well as the wider economy, internal bank targets and competitor pricing.
In aggregate, swap rates create a benchmark that can be looked to as a measure of where the market thinks interest rates will go.
Two-year and five-year swaps have risen by about 0.3 percentage points over the past couple of weeks.
Two-year swaps are currently at 3.83 per cent and five-year swaps are at 3.86 per cent.
Best mortgage rates and how to find them
Mortgage rates have risen substantially over recent years, meaning that those remortgaging or buying a home face higher costs.
That makes it even more important to search out the best possible rate for you and get good mortgage advice.
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> Mortgage rates calculator
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